Correlation Between Thomas Scott and HEG

Can any of the company-specific risk be diversified away by investing in both Thomas Scott and HEG at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Thomas Scott and HEG into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Thomas Scott Limited and HEG Limited, you can compare the effects of market volatilities on Thomas Scott and HEG and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Thomas Scott with a short position of HEG. Check out your portfolio center. Please also check ongoing floating volatility patterns of Thomas Scott and HEG.

Diversification Opportunities for Thomas Scott and HEG

0.74

Correlation Coefficient

Thomas Scott  HEG

Poor diversification

The 3 months correlation between Thomas and HEG is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Thomas Scott Limited and HEG Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HEG Limited and Thomas Scott is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Thomas Scott Limited are associated (or correlated) with HEG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HEG Limited has no effect on the direction of Thomas Scott i.e., Thomas Scott and HEG go up and down completely randomly.

Pair Corralation between Thomas Scott and HEG

Assuming the 90 days trading horizon Thomas Scott Limited is expected to generate 0.35 times more return on investment than HEG. However, Thomas Scott Limited is 2.87 times less risky than HEG. It trades about 2.28 of its potential returns per unit of risk. HEG Limited is currently generating about 0.23 per unit of risk. If you would invest  19,128  in Thomas Scott Limited on September 25, 2024 and sell it today you would earn a total of  28,506  from holding Thomas Scott Limited or generate 149.03% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Thomas Scott Limited  vs.  HEG Limited

Thomas Scott Limited

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Thomas Scott Limited are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Thomas Scott exhibited solid returns over the last few months and may actually be approaching a breakup point.

HEG Limited

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in HEG Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, HEG exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Thomas Scott and HEG

The main advantage of trading using opposite Thomas Scott and HEG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Thomas Scott position performs unexpectedly, HEG can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in HEG will offset losses from the drop in HEG's long position.

The idea behind Thomas Scott Limited and HEG Limited pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.